Taxes: Firms spend tax windfall on buybacks

Shareholders are cheering.(AP, Alamy)

“Tax cuts in hand,” U.S corporations are spending most of their windfall not on higher wages or investment but on “buying their own shares,” said Matt Phillips in The New York Times. Over the past month, nearly 100 U.S. corporations have announced more than $178 billion in share buybacks—“the largest amount unveiled in a single quarter.” Cisco is devoting $25 billion to buybacks; PepsiCo has announced $15 billion for shares; and Alphabet, home-improvement company Lowe’s, and chip equipment maker Applied Materials are each devoting between $5 billion and $9 billion. “Such purchases reduce a company’s total number of outstanding shares, giving each remaining share a slightly bigger piece of the profit pie.”

“If the buyback frenzy continues, the administration is going to have some explaining to do,” said Jennifer Rubin in The Washington Post. Part of the problem is that the Trump administration predicted that tax reform would boost U.S. household income by at least $4,000 a year. If wages and income do ultimately rise, “workers may not care all that much about shareholders’ windfall.” But if there isn’t dramatic change for people who have been struggling to pay the bills, and already wealthy shareholders get even richer, “Republicans will pay a heavy price.” ■